Limited Liability Partnership (LLP)
Limited Liability Partnership (LLP) combines the benefits of a partnership with that of a limited liability company. The idea behind LLP was to provide a form of business that is easy to maintain and to help owners by providing them with limited liability.
Advantages of LLP
1. Separate legal entity – An LLP is a separate legal entity. This means that it has assets in its own name and can sue and be sued. Furthermore, one partner is not responsible or liable for another partner’s misconduct or negligence.
2. Limited liability – The liability of the partners is limited to the extent of his/her contribution to the LLP. Unless fraud has been detected, the personal assets of the partner are protected from any liability of the LLP.
3. Lower Registration Cost – The cost of registration of LLP is low as compared to any other company (Public or Private). Read a Cost Comparison of LLP, OPC, private limited, partnership, and proprietorship.
4. Suitable For Small Business – LLPs having a capital amount less than ₹25 lakhs and turnover below ₹40 lakhs per year do not require any formal audits. This makes registering as an LLP beneficial for small businesses and startups.
Disadvantages of LLP
1. Penalty for Non-Compliance – Even if an LLP does not have any activity, it is required to file an income tax return and MCA annual return each year. In case an LLP fails to file Form 8 or Form 11 (LLP Annual Filing), a penalty of Rs.100 per day, per form is applicable. There is no cap on the penalty.
2. Higher Income Tax Rate – The income tax rate for a company with a turnover of upto Rs.250 crores is 25%. (Further reduced in 2019 for new companies involved in manufacturing). However, LLPs are taxed at a 30% rate irrespective of the turnover.
3. Inability to Have Equity Investment – An LLP does not have the concept of equity or shareholding like a company. Hence, angel investors, HNIs, venture capital and private equity funds cannot invest in an LLP as shareholders. Thus, most LLPs would have to rely on funding from promoters and debt funding.
To be eligible for registering as an LLP, the following criteria must be met:
- At least two partners are required to form an LLP
- Each partner must have an agreed contribution towards the shared capital
- LLP should have an authorized capital of at least ₹1 lakh
- At least one designated partner should be an Indian resident.
Documents Required for LLP Registration
- To register an LLP you need scanned copies of the following documents:
- From partners:
- PAN card or passport (foreign nationals or NRIs)
- Aadhar card/ voter’s ID/ passport/ driving license
- Latest bank statement/ telephone bill/ mobile bill/ electricity bill/ gas bill
- Passport-size photograph
- Blank document with specimen signature.
- Note: One partner must self-attest the first three documents. In the case of foreign nationals or NRIs, all the documents must be notarized (if currently in India or a non-commonwealth country) or apostilled (if from a commonwealth country).
- For the registered office:
- Utility bills
- Notarized rental agreement in English
- No-objection certificate from the property owner
- Sale deed/property deed in English (in case of owned property).